The insurance industry has traditionally been dominated by brokers, agents, and manual, paper-driven processes that are inefficient and unresponsive to consumer needs. These processes also leave little room for insurance product customization and more often than not are associated with tiresome underwriting procedures. Episodic insurance, also known as on-demand insurance, is insurance coverage that is turned on and off as consumers require it.
Understanding episodic insurance
With digitization revolutionizing similarly archaic sectors such as real estate and banking, consumers now expect the insurance industry to follow suit by offering on-demand insurance coverage that is both seamless and convenient to obtain.
Insurtech companies have responded to the call for on-demand insurance by utilizing a range of technologies including the Internet of Things (IoT), blockchain, mobile sensors, artificial intelligence, and other interactive processes.
Episodic insurance is just one aspect of this new era, enabling consumers to purchase insurance cover on their smartphones as and when it is required without interacting with a broker or company representative. In general, there are no long-term contracts, and premiums are paid for within the app. Claims, on the other hand, are handled in a mobile chat interface.
Episodic insurance characteristics
Fundamentally speaking, episodic insurance companies must provide a seamless customer experience while also making rapid and accurate risk assessments.
This dual ability requires capabilities such as:
Multi-channel data collection – insurers must collect data from IoT devices and connected technologies such as telematics, smartphone sensors, and wearables. Detailed data on insurance coverage duration and risk is then used to determine the premium that should be charged. For example, the premium a drone pilot is charged may depend on how fast or high they tend to fly their drone.
Continuous data analytics – on occasion, episodic insurance will require continuous underwriting as the risk profile of the coverage changes. One example is usage-based vehicle insurance, where premiums are determined by driving behavior and how many miles are driven over a set period.
Customer-centric productdesign– traditional insurance companies have a tendency to be inflexible and insure consumers in areas they didn’t request. Episodic insurance, on the other hand, covers consumers for exactly what they need and nothing more.
Episodic insurance types
While episodic insurance is a relatively recent development, several types are already being utilized. These include:
Continuous underwriting – where the risk profile of the individual, business, or asset being insured is constantly updated. As noted earlier, this has been made possible by advances in IoT devices.
Sharing economy insurance – this form of episodic insurance covers the risks and liabilities that are specific to an asset that is shared. Companies such as Airbnb (homes), Lyft (rides), and Task Rabbit (skills) are prime examples.
Microinsurance – which is intended to cover smaller or time-specific events and occasions. Many examples of microinsurance predate episodic insurance as we understand it today. Travel insurance is one example, where a traveler protects against theft or sickness over the course of their vacation. Coverage for a one-time rental of expensive assets is another example, such as a wedding photographer taking out cover for the use of a high-value lens for the weekend.
Key takeaways:
Episodic insurance, also known as on-demand insurance, is insurance coverage that is turned on and off as consumers require it. Like other industries with traditional and archaic practices, the insurance industry has been made more efficient by IoT devices and artificial intelligence.
Episodic insurance characteristics include multi-channel data collection, continuous data analytics, and customer-centric productdesign.
Episodic insurance is a relative newcomer to the insurance industry. Three types have started to emerge: continuous underwriting, sharing economy insurance, and microinsurance.
The insurance company revenuemodel revolves around a claimant receiving compensation in the event of an accident, illness, death, or damage to an asset resulting from theft or a natural disaster. In return for continual insurance cover, the company charges a regular fee – otherwise known as a premium. In essence, insurance companies make money by carefully considering the risk of each policy. They bet that the holder will continue to pay for insurance coverage and never be required to make a claim.
Root Insurance is an app-based car insurance provider founded by Alex Timm and Dan Manges in 2015. Since the age of fourteen, Timm, who has worked in insurance, wanted to streamline the insurance application process for both the consumer and the insurance company. The company makes a profit if the value of insurance premiums exceeds compensation payouts. While the company does have some overheads, its costs are much lower without the need to maintain physical branches.
Next Insurance is an insurance technology company founded by former co-workers Guy Goldstein, Alon Huri, and Nissim Tapiro. Drawing from the popularity of so-called insurtech companies they launched a website in 2016 with $13 million in funding. Next Insurance began by offering insurance tailor-made for photographers and personal trainers. Next Insurance makes money via the premiums it charges to customers every month.
A real-time insurance business model enables Tesla to build its own insurance arm, by dynamically adjusting the premiums, based on real-time driving behavior. Reduced insurance premiums hooked with the leasing arm, enable Tesla to scale its demand side of the business.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a businessmodel. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
In a franchained businessmodel (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
